- "The company just reported a game changer of a quarter, and even after that rally, the stock's basically back to where it was when it came public in a direct listing last year," CNBC's Jim Cramer says about Spotify.
- "Unfortunately, there were times when the company would report stellar results, but then management's forecast sounded tepid and investors gave up on the stock because of it," the "Mad Money" host says.
- "When you drill down, it is clear that Spotify is firing on all cylinders. There is no bear case that I can find now," he says.
The music-streaming platform surprised Wall Street on Monday when it recorded a profit including robust subscriber growth in its third quarter, sending the stock up more than 16% that trading day. The stock is now up more than 23% on the year, and the "Mad Money" host believes there's more upside on the way.
"The company just reported a game changer of a quarter, and even after that rally, the stock's basically back to where it was when it came public in a direct listing last year," he said.
Spotify grew sales by roughly 24% to $1.9 billion and monthly active users by about 30% to 248 million from the year-ago quarter, according to FactSet. The paid subscriber base expanded to 113 million and ad-supported monthly users reached 141 million, both beating analyst estimates.
Management gave conservative guidance, an approach it has often taken since it went public in April 2018 and that is unlikely to spur investors to bite at the stock. Also, it has not been clear what metrics analysts should follow to judge the company. On top of that, the Swedish company's revenue, with a chunk coming from the United States, was tough to decipher because of currency exchanges, Cramer continued.
Cramer, however, likes that Spotify's fourth-quarter forecasts are in line with Wall Street's expectations and is convinced the targets set the company up to UPOD — under promise and over deliver.
"I prefer executives who practice the art of UPOD ... to executives who over promise and under deliver," the commentator said. "Unfortunately, there were times when the company would report stellar results, but then management's forecast sounded tepid and investors gave up on the stock because of it."
One of Cramer's big reasons for getting behind the stock is Spotify's subscription business model. Consumers are increasingly spending more and more money on subscription services, the same model that Netflix has capitalized on and that other companies, including Disney and Apple, are following with their own products.
Spotify in its recent quarter "raised [its] monthly average user forecast for the next quarter. There was very little to quibble about," Cramer added. "When you drill down, it is clear that Spotify is firing on all cylinders. There is no bear case that I can find now."
Furthermore, Spotify signaled that it has unlocked success in its newly added podcast segment. The company said podcast streaming grew 39% year over year. CFO Barry McCarthy said Monday on "Squawk on the Street" that the podcast streaming will be as important to Spotify as original shows and movies streaming is to Netflix.
Spotify went public via direct listing at $165.90. The stock traded under $104 at its lowest point in December and ended closed Wednesday at $140.03, climbing more than 3% in the session.
Disclosure: Cramer's charitable trust owns shares of Apple and Disney.